Forest Carbon Partnership Facility

FCPF Carbon Fund Methodological Framework Update:

How Will the Carbon Fund Provide Guidance to ER Program Proposals?

FCPF PC15 Lombok, Indonesia

June 29 – July 1, 2013

• Guidance to REDD+ Countries developing Emission Reduction Programs

• Guidance to CF Participants assessing ER Programs presented

• ER Programs ER-PIN selection criteria: (Resolution FM/4/2012/1)

-- “Progress towards Readiness: The Emission Reductions Program (ER Program) must be located in a REDD Country Participant . . . – “Political commitment: The REDD Country Participant demonstrates a high-level and cross-sectoral political commitment . . . – “Methodological Framework: The ER Program must be consistent with the emerging Methodological Framework, including the PC’s guiding principles on the methodological framework;

Why Does FCPF Carbon Fund Need a Methodological Framework?

• “– Scale: The ER Program will be implemented either at the national level or at a significant sub-national scale, and generate a large volume of Emission Reductions;

• “– Technical soundness: All the sections of the ER-PIN template are adequately addressed;

• “– Non-carbon benefits: The ER Program will generate substantial non-carbon benefits; and

• “–Diversity and learning value: The ER Program contains innovative features, . . .add diversity and generate learning value for Carbon Fund.”

Why Does FCPF Carbon Fund Need a Methodological Framework?: 2

MF is One Part of How ER Programs Will Be Implemented

Methodological Framework

ER Program requirements

to be met

ER Program

Program design helps meet MF requirements, be

implementable, reflect local drivers and social

conditions

WB Due Diligence

WB regional staff + Program entities perform social/envir/financial due

diligence

Operational Processes & Implementation of ER

Program

eg, ERPA requirements, verification procedures

Recommendations for elements on carbon accounting: 1. Stepwise approach to reduce uncertainties 2. Reference level 3. Consistency with monitoring system 4. Address reversals 5. Address displacement (leakage)

Recommendations on programmatic characteristics: 1. Endorsement and implementing capacity 2. Scale and ambition 3. Safeguards 4. Stakeholder participation 5. Benefit sharing 6. Non-carbon benefits

Recommendations on pricing elements: 1. Fairness, flexibility and simplicity 2. Price structure 3. Informed negotiations 4. Non-carbon benefits

PC Working Group & PC12 Identified 16 Elements as Guidance for CF Developing Method. Framework

Process for Development of Methodological Framework for CF

WG Guidance

PC:

Provided Methodological

Principles & Pricing Guidance to Carbon

Fund, using PC Working Group

Carbon Fund WG:

• Review draft products of FMT &

TAP,

• Provide advice

Method. Framework:

FMT + TAP

TAP Work:

• Draft M F

• Draft issue papers

Periodic Updates

Carbon Fund

REDD Design Forum:

• Discussion of approaches & other climate

initiatives

• Format: Identify key questions. Review other climate initiatives.

• Propose options for CF approach. 1: General Approach for MF: standards and indicators approach. Scope and Scale of ER Programs. 2: Reference Levels 3: MRV design 4: Displacement (leakage ), and Reversals of GHG benefits (permanence) 5: Safeguards: WB safeguards, reporting on Cancun safeguards 6: Feedback and grievance redress mechanisms 7: Benefit sharing mechanisms 8: Carbon rights [and land tenure] 9: Registries 10: Operational & Financial strategy for ER-Programs

• Revised papers available in about 2 months

10 Methodological Framework Issue Papers Drafted

•WG Members: – ~ dozen financial Participants in CF; – 5 REDD+ countries (Colombia, Liberia, Nepal, Suriname, Vietnam); – Added DRC, Mexico for Paris meetings, as offering ER Program ideas – Observers – FMT

• TAP experts provide expertise and country experience. • Core TAP experts who assisted with drafting MF and issue papers • Additional REDD country experts from: Mexico, Brazil

• Goal: – Find the right balance of a clear set of requirements, . . . – and simplicity and practicality

Carbon Fund Working Group

• Presentations on MF design at last 4 CF + PC meetings

• “Elements” drafted 6/12 by PC Working Group as guidance to CF

• WG met in Brazzaville October 2012; in DC in March 2013; in Paris, June 21-23 + CF meeting June 24-25

• 3 REDD Design Forum events January – April 2013 to discuss issues among experts, TAP, countries, WG members, observers

• 10 issue papers drafted and shared with WG

• 2 conference calls: May 24th and June 9th

How Did We Get Here? WG and MF Process to Date

Walking Thru the draft MF Structure

Table of Contents

1. GENERAL APPROACH 2

2. LEVEL OF AMBITION 4

2.1 SCALE AND AMBITION 4

3. CARBON ACCOUNTING 6

3.1 ACCOUNTING FOR EMISSIONS [AND REMOVALS] 6

3.2 REFERENCE LEVELS 8

3.3 MEASUREMENT, MONITORING AND REPORTING ON EMISSION REDUCTIONS (INCLUDING UNCERTAINTIES) 12

3.4 ACCOUNTING FOR DISPLACEMENT (LEAKAGE) AND REVERSALS 16

4. SAFEGUARDS 18

4.1 ACTIONS TO MEET WORLD BANK SAFEGUARDS AND PROMOTE AND SUPPORT CANCUN SAFEGUARDS 18

4.2 ACTIONS TO ADDRESS RISK OF DISPLACEMENT AND REVERSALS 20

5. SUSTAINABLE PROGRAM DESIGN AND IMPLEMENTATION 22

5.1 BENEFIT SHARING 22

5.2 NON CARBON BENEFITS 24

6. ER PROGRAM OPERATION AND TRANSACTIONS 26

6.1 OPERATIONAL AND FINANCIAL PLANNING 26

6.2 LAND AND RESOURCE TENURE AND TITLE TO EMISSION REDUCTIONS 28

6.3 DATA MANAGEMENT AND ER TRANSACTION REGISTRIES 30

7. DEFINITIONS (GLOSSARY) 32

8. SUGGESTED GOOD PRACTICES 39

9. DIAGRAMS OF WB OPERATIONAL POLICIES; & DUE DILIGENCE 39

Organization of MF Draft

• Many ways to organize. This approach stresses: • Safeguards are cross cutting most of the Method. Framework . . .

• . . . and thus most of the ER Program design and implementation

• Sustainable development as major objective of ER Programs

• Cross links to WB operational processes are critical.

• Safeguards topics discussed in many sections: • 3.4 ACCOUNTING FOR DISPLACEMENT (LEAKAGE) AND REVERSALS (C ACCOUNTING

ISSUES)

• 4. SAFEGUARDS

• 4.2 ACTIONS TO ADDRESS RISK OF DISPLACEMENT AND REVERSALS (NON C ACCOUNTING)

• 5.1 BENEFIT SHARING

• 5.2 NON CARBON BENEFITS

• 6.2 LAND AND RESOURCE TENURE AND TITLE TO EMISSION REDUCTIONS

• 8. SUGGESTED GOOD PRACTICES

• 9. DIAGRAM OF WORLD BANK OPERATIONAL POLICIES / BANK POLICIES; & OPERATIONS

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• WG debate re is there a need to consider explicit additionality? – WG felt could address via setting Reference Levels set properly – What does it mean to be “ambitious”? – Should enhancing existing, or only new, ER Program measures be

considered “ambitious”?

3. Carbon Accounting

• Accounting for Emissions and Removals – Is accounting for removals (CO2 uptake) required (i.e., ‘net’ for RL and

MRV), as drafted in MF? – Or is gross accounting (emissions only) acceptable?

• Setting accounting area: – The ER Program area? Or a larger area, to assess displacement

(leakage)?

• Including degradation:

– Large source of emissions, but hard to measure. – Included now where acceptable data are available

Key Issues Discussed: 1. General approach, and 2. Level of Ambition

• Methods for setting reference level

• Relation to country FREL/FRL, in UNFCCC context

• Allow adjustments to historical RL estimates? – Currently only allows adjustments for HFLD countries. – Method still being discussed, could be either: a Guyana-like

quantitative threshold defining when adjustments are allowed and how much;

– Or an argument that country circumstances and trends do not favor use of a historical RL approach.

• Environmental Integrity of CF portfolio – Does CF need to review aggregate emissions at portfolio level? – To assure ERs are below aggregate historical rates

3. Reference levels

WG & CF Still Discussing Issues, Possible Solutions, & Level of MF Requirements for Countries

• Discussion of how WB OPs relate to UNFCCC safeguards guidance

• Considering whether to stress any additional indicators for Cancun safeguards topics, while recognizing WB standing Operational Policies and practices

• CSO observer letter urging elaboration of this section

• Discussed if WB due diligence process would cover all Cancun safeguards, or would country need to cover some?

• Building on country Feedback and Grievance Redress Mechanisms for ER Program needs

4. Safeguards: Relation of WB OPs & FCCC Safeguards

18

World Bank Safeguard Policies

• WG stressed importance of sustainability of ER Programs . . .

• But still discussing how to reflect this concern – Draft tries to stress sustainability … but MF cannot be prescriptive in MF. – Issue: CF and FCPF end in late 2020 . . . – So how to encourage or ensure ER Programs are maintained after the

end of the term of the ERPA contract?

• Creation of a buffer of ERs set aside by each ER Program, or by the CF, discussed, to address risks. – But needs far more thinking: buffer for what purposes? – How much to set aside? Who manages?

• Benefit sharing: – Identifying who benefits, and how, is critical process for any ER

Program. – Focus on defining elements of Benefit Sharing Plan in ERPA contract – Likely non-monetary benefits, & possible monetary benefits – But up to those involved to define

5. Sustainable program design and implementation

• Operational guidelines – WG supporting sharing information on WB operational

guidelines on many aspects of ER Programs

– Question: How much to include now in MF? vs. in later programmatic guidelines?

• Title to Emission Reductions – “carbon rights” term questioned

– Is it feasible to have “full title” to ERs by the time of the ERPA?

• Focusing on ability to transfer ERs, less on land and resource tenure issues – Many felt MF and FCPF should leave complex tenure topic to

countries, and

– Focus on demonstrating ability to transfer ERs

6. ER Program Operation and Transactions

21

Business Process of the FCPF Carbon Fund FMT draft June 18, 2013

5. ER Program Document submitted

(REDD+ Country or authorized entity)

6. ER PD reviewed + selected

(Carbon Fund Participants and World Bank)

1. ER PIN submitted (REDD+ Country or authorized

entity)

2. ER PIN reviewed + selected into pipeline

(Carbon Fund Participants and

World Bank)

3. Letter of Intent signed

(REDD+ Country/authorized entity and World Bank)

7. ERPA Negotiation + Signing

(World Bank and Carbon Fund Participants)

8. Implementation, Verification, Payments (Carbon Fund Participants and REDD+ country/authorized entity)

Readiness Package submitted (REDD+ Country) and

endorsed (FCPF Participants)

World Bank Due Diligence Program appraisal and Safeguards assessment (includes assessment of associated economic,

technical, institutional, financial issues and risks, and social and environmental safeguards)

(World Bank)

ER Program Due Diligence Includes assessing technical (e.g. REL, MRV) and

programmatic elements (e.g., sub-national arrangements, benefits sharing) in accordance with

Carbon Fund’s Methodological Framework

(FMT, Carbon Fund Participants)

4. Draft ER Program Document prepared

(REDD+ Country/authorized entity with technical support

from the World Bank)

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Possible supporting documentation for the MF

I. Good Practice Guidance for FCPF Carbon Fund ?

– I.e., technical guidance, good practice examples, tools, links and

references to support country preparing ER-PD – May include decision support tools, eg.:

• Reference Levels and MRV (in progress); Feedback and Grievance Redress Mechanism (draft available); etc.

II. Guide to Operationalizing Carbon Fund ER Programs ?

– Information on relevant WB safeguards policies and procedures – Carbon Finance Operations

» Due diligence process » Implementation, monitoring, ESMF, etc.

Evaluating a Grievance Redress Mechanism Questions to Consider

[excerpt] “Design Stage Why did you include a Grievance Redress Mechanism (GRM) in your project? Where/how did you locate the GRM? How did you determine it would be effective? Was the GRM designed with participation from the communities it is intended to serve? Implementation Stage 1. Organizational Commitment Do the project’s management and staff recognize and value the GRM process as a means of improving public administration and enhancing accountability and transparency?

Is grievance redress integrated into the project’s core activities? . . .”

Potential Tools: Example from: “Draft toolbox for addressing grievances and disputes during REDD+ readiness preparation: Evaluating a Grievance Redress Mechanism”

Now to late July: WG reviewing drafts and revisions

Late July - early Sept. ? Public comment period proposed

Early September ? REDD Forum #4?: in DC: cross

cutting issues?, buffers?, public

comments, Good Practices?

early October ? Final MF distributed to CF?

Late October ? Carbon Fund meeting: review and

adoption of MF for use by ER

Programs ?

Emerging Schedule